• Estimating construction costs

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    Where a new owner is unable to determine precisely the construction expenditure associated with a building, an estimate provided by an appropriately qualified person may be used. Appropriately qualified people include:

    • a clerk of works, such as a project organiser for major building projects
    • a supervising architect who approves payments at stages of projects
    • a builder who is experienced in estimating construction costs of similar building projects
    • a quantity surveyor.

    Unless they are otherwise qualified, valuers, real estate agents, accountants and solicitors generally have neither the relevant qualifications nor the experience to make such an estimate.

    Example

    Capital works (special building write-off) deductions

    The Perth property acquired by the Hitchmans on 20 July 2001 was constructed in August 1991. At the time they acquired the property it contained the following structural improvements.

    Item

    Construction date

    Retaining wall

    September 1991

    Concrete driveway

    January 1992

    In-ground swimming pool

    July 1992

    Protective fencing around the pool

    August 1992

    Timber decking around the pool

    September 1992

    In a letter to the Hitchmans, a supervising architect values the construction cost of the rental property for special building write-off purposes at $115 800. This includes the cost of the house, the in-ground swimming pool, the protective fencing and the timber decking. Whilst the retaining wall and the concrete driveway are structural improvements, they were constructed before 27 February 1992 and were not included in the $115 800 valuation. Therefore, they do not form part of the construction cost.

    The Hitchmans can claim a 2.5 per cent per annum capital works deduction for the construction costs. As they did not acquire the property until 20 July 2001, they can claim the deduction for the 346 days from 20 July 2001 to 30 June 2002. The maximum deduction for 2001-02 would be as follows:

    Construction cost x rate x portion of year = deductible amount

    $115 800 x 2.5% x

    346
    365

    = $2745

    For more information about construction expenditure and capital works (special building write-off) deductions, see Taxation Ruling TR 97/25.

    Last modified: 18 Jul 2008QC 16578